Tax rise changes sums for Mapletree

Singapore’s Mapletree Logistics Trust is recalibrating its figures on a $500 million deal with Stockland following last week’s surprise tax rise for foreign real estate investors.

The portfolio sale is the first major transaction hit by the doubling of the withholding tax rate from 7.5 per cent to 15 per cent on managed investment trusts – vehicles widely used by offshore property players.

According to sources familiar with the deal, the Temasek-backed Mapletree demanded a renegotiation of the sale price after the government unveiled the controversial measure in its recent budget.

The unexpected tax increase, which immediately attracted a barrage of criticism from key figures in the sector, is also being blamed for the flight of a heavyweight Asian investment fund.

Two buildings in Sydney and a third in Brisbane were under consideration by the Hong-Kong based vehicle, but a source close to the firm said the discussions were halted last week because of the “greater than anticipated tax leakage".

Many of the international groups in the race for Lloyds’ $1.9 billion portfolio of soured property loans are also thought to be grappling with the sudden hike.

While the budget change will not derail the Mapletree deal, which is understood to be nearing the end of two months of due diligence, the post-budget negotiations between the two property behemoths are likely to be scrutinised.

As one senior source pointed out, “this is a test case" for how investors react to the tax rise.

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Mapletree intends to ring-fence the Stockland assets within a managed investment trust (MIT) but must now factor in an extra 7.5 per cent cost to the half billion dollar transaction.

Scores of other prominent global corporations in the Australian market, such as Blackstone, LaSalle Investment Management and Singapore’s K-REIT, the owner of Sydney’s Aurora Place, will be making similar calculations.

Although there are means of avoiding the hit, which is due to come into force on July 1, many in the sector fear that the influx of foreign cash will stagnate under the new legislation.

Marcus Leonard, a tax consultant with PKF Chartered Accountants, said the comparatively cheap MIT structures offered many “offshore investors better returns than what they could achieve in their own jurisdictions".

He claimed the government’s reversal of its previous investor friendly approach has damaged the country’s reputation for stability, instilling nervousness about future abrupt tax rises.

Research from Colliers International showed the volume of international money has surged almost fivefold to $5.5 billion since 2008 when the withholding tax rate was slashed from 30 per cent to 15 per cent by Kevin Rudd’s administration and then reduced again to 7.5 per cent by the Gillard government in 2010.

Stockland has consistently de­clined to comment on the Mapletree deal.

But the transaction, which includes all of the trust’s logistics properties, apart from the sprawling $335 million Yennora distribution centre in western Sydney, will mark a major milestone in the developer’s transformation towards its controversial ‘3R’ identity.

Over the past couple of years, Stockland has been steadily offloading its office and industrial assets in order to focus solely on its core sectors of residential, retail and retirement, although the strategy change has become a source of friction with some investors.